Argentina Escapes Money Laundering Sanctions

Argentina narrowly avoided sanctions Wednesday for its failure to tackle money laundering, reflecting growing international concern about drug trafficking profits being laundered through the country’s poorly-regulated financial system, helped by rampant corruption, government indifference, and increasing penetration by the drug trade.

The Financial Action Task Force (FATF), an inter-governmental organization set up to combat money laundering, published a damning report in December 2010 on Argentina’s failure to meet international standards in fighting this crime. It found that Argentina did not comply with the vast majority of its recommendations, with institutional problems such as a legal loophole which means it is not an offense for someone to “clean” their own money, only for a third party to do so; the widespread use of cash, driven both by the wish to avoid taxes and by general mistrust of the banking system; and under-regulation of the real estate sector.

FATF gave a deadline of February 2011 for the government to take action, but has now ruled that since Argentina is “fully cooperating,” it will not be added to the “gray list” of countries which fail to tackle the crime. The country remains on the watch list, however, and FATF will decide in June whether to to take further action against Argentina’s “lack of effectiveness” in preventing the free flow of illegal money.

With money laundering comes the specter of the international narcotics industry. While most Argentine laundering is driven by domestic tax evasion, the December report said, “Drug trafficking also generates significant proceeds.” It identified the South American country as being increasingly involved in the drug trade, both as producer and consumer, and as a supplier of precursor chemicals used to produce narcotics. This analysis is backed by a U.S. diplomatic cable released by WikiLeaks in November 2010, sent from the Buenos Aires Embassy a year previously, which says that, according to Embassy sources, “narcotics trafficking is becoming a real problem and that, increasingly, the dirty money sloshing through the financial system originates in the drug trade.”

The drug factor makes Argentina’s lackluster efforts to stop money laundering an issue of international concern. Disrupting traffickers’ financial networks and ways of making dirty money appear legitimate is a key part of combating the Americas’ interconnected illegal trades in drugs, humans, and arms. InSight has noted the increased use of Argentina as a transshipment point for drugs on their way to Europe, as well as the country’s emerging links to Mexican drug cartels, who buy chemicals for the production of methamphetamines from Argentine groups. This trend is encouraged by the state crackdown on Mexico’s drug business, which has pushed gangs to find new, less regulated fields of operation, such as Argentina, which as well as long, ill-monitored borders also has a more loosely controlled pharmaceutical industry.

As noted in the U.S. Embassy cable, a lax legal and political environment may be to blame for Argentina’s increased involvement in the drug trade: “The near complete absence of enforcement coupled with a culture of impunity and corruption make Argentina ripe for exploitation by narco-traffickers and terrorist cells.” Corruption runs deep in Argentina, which ranked 18 out of 26 Latin American countries in Transparency International’s 2010 Corruption Perceptions Index, placing it behind far poorer nations such as Guatemala or El Salvador, scoring 2.9 out of a possible 10.

Despite the FATF’s ruling that the Argentine authorities are taking “strong action” to reform and tackle money laundering, the political will of the government to counter this crime is called sharply into question by revelations from the WikiLeaks cables. The 2009 cable said that the FAFT project head was “skeptical of the GoA’s [government of Argentina’s] intentions to combat money laundering and terror finance,” and that ruling couple President Cristina Kirchner and (now deceased) former President Nestor Kirchner were unlikely to crack down on money laundering, as they “and their circle simply have too much to gain themselves from continued lax enforcement.”

This indictment of corruption at the highest levels in Buenos Aires reveals a threat to the country’s security that goes beyond the financial; the cable warns that that the Argentine government’s “indifference” to money laundering could draw the drug industry closer, providing traffickers with “an attractive local staging ground.”

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